Proposed New CUSO Regs Draw Alternative Ideas

While some in the industry would be opposed to a mandate that would require CUSOs to provide financial records to the NCUA and state regulators, a small minority are seeking another form of transparency.

That backing was expressed by a handful who wrote to the NCUA about the agency’s proposal that includes a hot button provision requiring federally insured, state chartered credit unions and federal credit unions to include in their agreements with CUSOs to submit a financial report directly to the NCUA and applicable state authorities.

As the NCUA’s Part 712 reads now, any credit union that has an investment in or a lending agreement with a CUSO must agree to allow the regulator access to that CUSO’s books and financial records. However, the agency wants to expand this requirement to include quarterly financial statements, conduct an annual audit and prepare an annual report to the NCUA and state regulators that conforms to generally accepted accounting principles or generally accepted auditing standards.

Ellen Silberbauer said she opposes that measure but would back enhanced transparency for credit unions, including more information from CUSOs to participating credit unions.

“This includes quarterly financial statements prepared under GAAP, an annual audit prepared under GAAS, and that CUSOs should agree with their credit unions to provide necessary information in order for the credit union to perform proper due diligence as it relates to the CUSO,” Silberbauer wrote in her Aug. 31 letter.

Under the NCUA’s proposal, state credit union regulators would be permitted to seek an exemption for their credit unions allowing the federal agency’s access to CUSO records. Silberbauer, who only listed what appeared to be personal contact information in her letter, said she would support exemptions and waivers for state and FCUs.

Another concern the NCUA has raised is what it said is how less than adequately capitalized FISCUs pose serious risk to their members and the NCUISF when investing money into failing CUSOs. As a result, the board wants to limit these FISCUs’ aggregate cash outlays to a CUSO, consistent with state laws.

The current rule is FCUs that are considered less than adequately capitalized by the NCUA cannot invest in a CUSO if the investment would require a total cash outlay of more than 1% of the credit union's paid-in and unimpaired capital and surplus unless the credit union receives prior written approval from its NCUA regional director.

The NCUA’s proposal would extend to state-chartered credit unions with the limit on the amount of the investment to be determined by state law. If there is no such state limit, the federal 1% undercapitalized limit would then apply.

“Because this requirement is consistent with safety and soundness and because federal credit unions are already subject to it, I generally support this requirement,” Silberbauer said.

In her Aug. 30 comment letter, Kris Prather a supporter of more record transparency directly between credit unions and CUSOs as well as the state exemptions, mirrored Silberbauer’s positions on the provisions. Four others submitted identical letters with the same support.

The NCUA comment period on its CUSO proposal is scheduled to end Sept. 26.